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Introduction Inflation and Your 401k

Many investors in the United States are getting scared about their 401k retirement savings because of the continuous rise in inflation and its impact. In addition, the fact that the inflation rate was hitting new high levels, up to 8.5% in 2022, makes these concerns even more valid.

It is pertinent to note that your investments and dividends will not adjust to accommodate inflation. It means that the rise in the cost of living during inflation will not cause the money you have invested in the stock market through your 401k retirement savings plan to rise. A high inflation period can negatively affect the returns from your 401k investment because it will decrease the dollar's purchasing power.

To illustrate what we mean, here is an example of how inflation negatively affects your 401k returns. If


inflation proof your 401k

We must also mention that keeping your money invested in a vehicle like a 401k has more advantages than saving it in cash or money market accounts. The 401k investment interest rate may be low when inflation strikes, but it is always relatively higher when you compare it with keeping your money in these other vehicles.

According to Statista, the annual United States.

The Implementation Note that the Federal Reserve issued on the 3rd of May, 2023, showed that they increased interest rates to 5.25% in May 2023. This increase was the 10th time the Federal Reserve was hiking the interest rate between 2022 and 2023.

The constant increase shows that the Federal Reserve intends to slow or reduce the inflation rate to at most 2%. Some financial experts say the Fed may boost the interest rate more to keep increased inflation in check.


What is a 401k Retirement Plan, and How Does It Work?

A 401k is a retirement plan sponsored by employers in the United States. These employers offer their employees this retirement savings plan as part of the benefits of working with them. The 401k retirement account allows employees to save a portion of their salary in the account. While most private sector employers offer 401k plans, employers in the public sector offer 403b and 457b plans.

401k retirement accounts have annual minimum and maximum contribution limits. Sometimes, employers can match some of their employees' contributions to their 401k accounts.

Ultimately, the monies employees save in the 401k savings and retirement accounts are invested in stock market assets, and they enjoy long-term tax-free growth.

There are primarily two types of 401k retirement savings plans.

  • Traditional 401k
  • Roth 401k
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Traditional 401(k)

The traditional 401k is a retirement account that allows you to take out your contributions from your paycheck to save in your 401k before the IRS deducts your income taxes. It means that your 401k retirement account contributions will immediately reduce your taxable income.

Your 401k retirement savings plan contributions will go into mutual funds and other stock market investments. Your investments will grow tax-free. However, you will pay income tax when you want to take your qualified distributions from the 401k account.

Roth 401(k)

This type of 401k retirement plan is not popular. However, some employers offer it. The Roth 401k allows employees to make contributions from their after-tax income. When taking eligible distributions, you will not pay income taxes like you will for a Traditional 401k account.

You will be making the best choice to opt for a Roth 401k if you need to pay a higher tax bracket at retirement. In addition, if you are a young employee or just starting your earning career, lower tax brackets and income levels could make choosing a Roth 401k a great idea.

The choice of opting for either the Roth 401k or the Traditional 401k is yours, especially if your employer offers both. However, suppose you must choose from the two options. In that case, we recommend that you seek the services of a financial advisor or a tax professional. Some employees can allow you to split your contributions between a Roth 401k and a Traditional 401k.

What is Inflation?

Inflation is characterized by increased living costs that reduce the dollar's purchasing power.

The Central Bank of the United States, and the United States Federal Reserve aim for the inflation rate to rise slowly and steadily, at most an increase of 2% yearly.

When the inflation rate climbs faster than normal (2%), it can destabilise consumers who are not expecting to pay more for the cost of living, for instance, gas, clothes and groceries, rent, and other products and services.

The level of stress inflation brings consumers can plunge the country into less productivity.

According to Peter C. Earle, a Massachusetts libertarian thought leader and a member of the AIER (American Institute for Economic Research), "Prices rise unevenly, and it becomes difficult for consumers to determine the best price for a certain goods or service at a particular moment. Hence, more time is spent seeking and comparing prices to get the lowest purchase price."

One historical example of rapid inflation happened around the 1970s. The inflation led to gas shortages, and consumers queued for a long time to buy fuel at expensive prices.

Types of Inflation

There are three primary types of inflation:

  • Demand-pull Inflation
  • Cost-push Inflation
  • Built-in Inflation

The United States of America is currently dealing with these three types of inflation. According to Christopher Blake, an Oxford College of Emory University associate professor of economics, "The story is rare and complicated in a way that it hasn't been in 40-plus years, given that we usually only see one form of inflation or the other."

Demand-Pull Inflation

This type of inflation refers to how increased goods and service demand drives up prices. Generally, if a product or service has a supply shortage and more people are willing to pay for it, the price will be high.

Hypothetically, paying for a vacation plane ticket even when the prices are significantly higher than normal shows demand-pull inflation.

Currently, the demand-pull inflation in the United States is because of the rising wages and U.S. citizens saving a lot of money in their accounts. However, some citizens are beginning to empty these savings account now.

Blake states, "Consumer spending has remained high, despite the rising prices we currently see. This scenario is called demand-pull inflation, as consumer demand pulls prices higher because firms cannot keep up."

Cost-Push Inflation

Cost-push inflation will usually set in when demand-pull inflation is waxing stronger. When there is an increase in production costs for businesses, they must increase their product prices to match these costs, no matter the level of demand.

On Cost-Push Inflation, Blake says, "Increases to the prices that producers face put businesses in a tough spot, they can accept higher costs and keep their prices the same, or they can respond by trying to keep their profit margins the same."

A good example is that your favorite eatery must increase the price of your favorite chicken sandwich immediately after the price of chicken increases.

Built-in Inflation

Workers will ask their companies or employers for salary increments when there is a continuous rise in cost-push and demand-pull inflation. Employers will have labor shortages if they do not oblige to the requests.

Hence, if a company or employer raises the wages or salaries of its workers while also trying to increase prices to keep up with profit margins, built-in inflation will kick in.

Prtoecting your 401k from inflation

Source New York Times

Inflation and the Stock Market

Inflation affects all parts of a country's economy, including business investments, unemployment, interest rates, and consumer spending. In a simple layman's definition, inflation means a sustained increase in the total price levels of goods and services.

Most of the time, low inflation will lead to the growth of an economy, while a high inflation rate will destroy the economy's growth. In addition, high inflation shows that the economy is overheating, and a possible recession could follow in a much larger economy.

The answer to what inflation does to the stock market can be complex, but one can explain it easily based on whether it is a high, moderate, or low inflation period.

How Does Low Inflation Affect the Stock Market?

The stock market is one of the ways the United States uses to observe its economy and future conditions. The ideal situation for the U.S. stock market is maintaining low to moderate inflation with an increasing rate of 1% to 3%.

This moderate to low inflation rate shows that the economy is not overheating and is good. In addition, it shows that goods and services demand is healthy. The prices of goods and services are stable, and each dollar's eroding value is acceptable.

When there is inflation, it will erode income value, investment, savings, and money entirely.

How Does High Inflation Affect the Stock Market?

High periods of inflation will make consumers lose a significant percentage of their purchasing power, like what is happening in the United States today. They will need to spend more to purchase the same amount of goods and services they would have purchased for less money previously.

For instance, the high oil prices have significantly increased transportation costs. When inflation is high, businesses must buy raw materials, transport goods, and run their operations for higher prices. These companies, in turn, increase the prices of their goods, which means that their consumers take all or part of the inflation impact. However, customers do not treat higher prices favorably.

In summary, there is so much uncertainty when there is high inflation because consumers will need to put their spending habits in check. The high level of inflation can reduce retail sales. This retail sales reduction in the Unites States market is not good news because it can significantly hamper the economy's growth.

A decline in the economy's growth will negatively affect investors, including stock market investors. Hence, there is a high chance that high inflation periods will weaken the stock market. The level of inflation in 2022 explains why the stock market did not perform so well that year.

The Direction of Stocks During Inflation

When inflation is low, the value of money will reduce, and in theory, growth stocks should do better than value stocks. With high inflation, value stocks will do better than growth stocks. However, the valuation concerns when inflation is high will drive the stock market lower.

In addition, it takes time for high inflation to return to moderate inflation. High Inflation in the United States is usually between 8 and 8.5%, while the moderate range or average inflation rate is between 2 and 3%. The Fed constantly increases the interest rates in a bid to tame high inflation.

The equity valuation will go lower when the Fed uses a higher-risk rate to value stocks in a discounted cash flow model. If stock valuations go low, then the prices of stocks and their intrinsic worth need to rebalance steadily. At this point, the most logical trend for the stock market will be the downside movement.

When inflation is high, the cost of capital and money generally will increase. Interest rates will rise, and companies that are in debt will be in jeopardy. It explains why stocks with high growth and companies with debts suffer so much when there is high inflation and rising interest rates.

High Inflation and Stock Market Crashes or Volatility

In 2022, the stock market was volatile and economic experts are already projecting that it will get more volatile in 2023, especially with the high-interest rates. The stock market will have negative nominal returns when inflation is high.

Hence, you must be very careful and pay high attention to type of stocks you pick for inclusion to your 401k portfolio when inflation is high than when it is low.

Some experts argue that investing in stocks with high dividends when inflation is high is better because such stocks will compensate investors with passive income for the loss of dollars' purchasing power.

In a previous article about recession, we discussed how two consecutive negative economic growth periods could get a country into recession. Inflation causes negative economic growth. Thus, it is proper to say that two consecutive high inflation periods will lead to a recession. The inflations and the following recession will get stock market investors into negative sentiments and may influence their style of investing largely.

Ultimately, high inflation is both bad news for the stock market and its investors, and it is also an unsustainable economic condition that can affect the growth of an economy negatively. It will also weaken the economy's strength. High inflation periods mean many troubles for the stock market and the economy in general.

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How Would Inflation Affect My 401k Retirement Account and Savings?

As we mentioned, inflation negatively affects the purchasing power of the dollar. When there is an increase in the price of goods and services, you will pay more to buy the same things you would have originally bought for less.

If you look at this situation from the point of retirement savings, it could be problematic because the ROIs from stocks and other 401k investments do not adjust automatically to accommodate the negative effects of inflation. It then means that when there are extended periods of inflation, you may suffer losses on your 401k investments.

Usually, the pressure that most 401k investors feel when there is a prolonged period of high-level inflation depends on how close they are to their retirement ages and the investment strategies they use for their 401k investments.

How Can I Protect My 401k Retirement Saving Before and Amid Inflation?

Increase or Maintain Your Contributions

Your paychecks may not go so far when the prices of goods and services increase. For this reason, you may be tempted to drawback your 401k contributions. Do not fall into that temptation. You still need to contribute an amount that can get you the full company match if your employer offers one to ensure your money keeps growing.

If you can, it is not a bad idea to consider a raise in your contribution amount so that you can invest more into your 401k. Remember that according to the IRS, your maximum contribution limit for your 401k in 2023 is $22,500. Employees who are over 50 years can make an additional contribution of $7,500.

Check Investment Expense Ratio

One of the most beneficial moves 401k investors can make is reducing their investment fees. This move is even more important when there is inflation that is threatening to shrink your 401k ROIs.

Naturally, the lesser investment fees you pay, the more your 401k ROI will be in the long term. Hence, when reviewing your 401k plans, it is expedient to consider the expense ratio you are paying for every asset in your portfolio.

Do Not Hold So Much Cash

As much as you need money in your savings account, you also need money in your checking account to cater to daily expenses and emergencies. However, if you are planning as a long-term investor, holding plenty of cash is not something you should do, especially when there is high inflation in the economy. The reason is that your cash will keep losing purchasing power as the years go by because of the rising inflation. Hence, you can only purchase fewer and fewer goods and services with the same cash amount every year.

Consider investing your extra cash into long-term investment vehicles that will likely maintain the value of your money and its purchasing power, no matter the level of inflation. One of those kinds of vehicles is gold and silver investments through a gold IRA (Individual Retirement Account).

Financial experts advise that people hold emergency funds that can cater to expenses worth 3 to 6 months. Other extra funds should go into more stable long-term investments like gold IRAs.

Diversify Your Investment Plan

Diversifying your investment plan or portfolio means spreading your investment funds into various investment vehicles. Proper diversification will help you mitigate the risk of total 401k portfolio loss even when the stock market is crashing because of rising inflation.

For instance, you can invest some of your 401k personal finance into mutual funds holding stocks. These investments will rise when inflation rises.

You can also invest some of your funds in TIPS (Treasury Inflation-Protected Securities). When there is a rise in Inflation, TIPS will adjust the principal amount's price to keep its actual value instead of yielding an increase.

At the time of issuance, TIPS (which are fixed income investments) will offer fixed interest rates. However, the interest payment will keep pace with inflation because it differs from the adjusted principal amount.

Another safe bet when there is high inflation is a short-term bond investment. Usually, when you invest in short-term bonds, you will free yourself from lower rates for a long period.

Your money invested in TDFs (Target Date Funds) can also be safe when there is high inflation, and you are nearing retirement age. Usually, when you do not invest your 401k funds in stocks, bonds, or mutual funds, it will automatically go into TDFs investment.

TDFs are designed to mature when you are close to retiring. Hence, the investment portfolio adjusts to hold more stable and safer assets as you retire. If you have low risk tolerance, this investment option may be ideal for you.

You can also diversify your 401k funds using Real Estate Investments, especially through REITs (Real Estate Investment Trusts).

The last and one of the safest investment asset classes that can shield your 401k funds from high inflation is real asset investment through an IRA, especially precious metals. Investing in precious metals (gold, silver, platinum, and palladium) through an IRA will help your portfolio beat inflation no matter how high it gets. We will talk about gold IRAs in the next section.

What Asset Class Is Best for Effective Diversification of My Retirement Portfolio – Gold IRA?

As we stated in the previous section, gold IRAs are one way to ensure that your 401k funds maintain their value amid the raging inflation in the United States. It is one of the surest ways to keep your funds from devaluation.

Throughout the years, gold and silver investments have beaten inflation to become proven value stores for investors. Generally, gold and silver investments increase in price when the consumer price index of the stock market investments crashes due to high inflation. For decades, gold and silver investments have outperformed other investment vehicles regarding beating inflation in the United States.

In addition, investing in a gold IRA allows you to maintain your 401k value and get profit from gold’s price increase over a long period while also enjoying the benefits of an IRA.

Hence, if you want to protect your 401k savings from the eroding effects of high inflations in the United States, we recommend diversifying your 401k portfolio with gold IRA investments. Hundreds of gold IRA companies in the United States claim they can help investors to diversify their retirement portfolio properly for maximum protection.

However, to save you the stress and time of looking for the most credible companies in the United States that can help you diversify your 401k funds and keep your portfolio safe through gold IRA investments, we have carefully handpicked the best five gold IRA companies in the industry.

To know more about these companies and gold IRA investments, please click the relevant links in the next section of this article.

Protecting A 401kk Retirement Plan From Inflation

augusta Precious Metals

This company is the absolute best precious metals IRA firm in the U.S. today due to Augusta’s transparency, pricing, dedication to education, and extraordinary attention given to customers. We highly recommend that everyone take advantage of their free web conference that helps you understand the economy, threats to your retirement, and the precious metals buying process (designed by their in-house Harvard-certified economic analyst). They even share tips for avoiding gimmicks and high-pressure tactics in this unregulated industry.

This gold precious metals specialist company was chosen by Money magazine as “The Best Overall” in its Best Gold IRA Companies list for 2023. It is the only gold IRA firm with ZERO complaints on the BBB website since 2012. It has an outstanding track record proven by consumer watchdog ratings and tons of the best customer reviews, including endorsement by hall-of-fame quarterback Joe Montana, whose advisors found Augusta for him. We are thrilled to recommend Augusta as our #1 gold IRA company!


  • Award-winning recognition for account lifetime customer service Money magazine’s “Best Overall” & Investopedia’s “Most Transparent” in 2022.
  • Experienced professionals to help you make the ideal choice of investments.
  • Only gold IRA firm with ZERO complaints at BBB, BCA since launching in 2012.
  • Thousands of 5-star ratings from customers.
  • Must-watch: Free web conference with an excellent focus on consumer education.
  • Endorsement by high-income customers, including corporate ambassador Joe Montana, whose team found this company for him.
  • Transparent, streamlined process and competitive rates.
  • No hidden management fees & ZERO custodian/storage fees for up to 10 years – every customer qualifies.


  • A minimum balance of $50,000 in savings makes this best for the “red carpet.”
  • Limited selection of gold and silver investments.
  • Virtual account opening is not possible.

To start investing with Augusta Precious Metals, please click this link to download its 2023 gold investment kit for free.

Our #2 IRS 401k to Gold Company Recommendation

Goldco complaint
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Established in 2006, this company has an excellent solid record and is our top recommendation for people looking to invest over $25,000 in a gold IRA. We consider this gold trading online platform the 2nd best Gold IRA Company in The USA Today.


  • 2nd Ranked Gold IRA dealer.
  • Top ratings from BCA, TrustPilot, and other third-party review sites and excellent customer reviews.
  • Biggest promotions in the industry.
  • Best buyback program.
  • No high-pressure sales tactics.
  • Competitive pricing.
  • Works with the most secure storage companies.
  • Dedicated expertise in precious metals.
  • Excellent customer service.


  • The minimum IRA deposit requirement is $25,000.
  • You cannot virtually set up an account.
  • Information about the management is not available on the Goldco
  • The fee may appear to be slightly higher than some budget-friendly rivals.

To start investing with Goldco, please click this link to download its 2023 gold investment kit for free.

Our #3 IRS 401k Inflation Beating Gold IRA Company

Hartford American

American Hartford Gold Group

One of the most trusted Gold and Precious Metal brokers in the United States is American Hartford Gold. This family-owned company is endorsed by Bill O’Reilly and America’s Mayor, Rudy Giuliani.

American Hartford Gold is great for gold and palladium IRA and purchasing physical Gold, Silver, and Platinum.


  • Easy-to-open silver & palladium IRA accounts with very competitive rates.
  • Free storage, maintenance & insurance for up to 3 years.
  • Physical gold and silver will be delivered to your front door at no additional cost.
  • Hassle-free process to buy back your precious metals with no fees.
  • Does not share your information with any private or public entity.


  • No prices on the online catalog.
  • Doesn’t ship out of the U.S.
  • Minimum investment requirement of $10,000 for Gold IRA rollovers.

To start investing with American Hartford Gold, please click this link to download its 2023 gold investment kit for free.

Birch Gold

Since it was established in 2003, the company has delighted customers and provided excellent customer education. Birch Gold Group’s one-on-one interactions with customers are a fundamental advantage for those who want to make vital decisions impacting their financial future.


  • Top ratings from national consumer agencies.
  • Opportunity to invest in palladium and platinum.
  • For investments above $50,000, no fee in the first year.
  • Exceptional customer service, support, and advice.
  • A strong market presence and a history of nearly 20 years.


  • Online account opening is not permitted.
  • There is no onsite live customer chat.
  • Annual fees and setup costs are not accessible online.
  • You need their information kit to find complete details about the management team.

To start investing with Birch Gold Group, please click this link to download its 2023 gold investment kit for free.

Noble Gold

The truth is that Noble Gold has not been around the scene for a long time, but it has, in the shortest time possible, made huge impacts on the gold IRA market. Since its inception, the company has captured customers’ hearts via its vast educational resources gallery, a wide range of investment options, and low investment requirements. The company’s commitment to customer service also has high ratings on third-party rating sites like BCA and Consumer Affairs.

According to the agent we spoke to, Noble Gold gives customers a committed account manager from the first day they decide to open a gold IRA account with it. The knowledgeable professionals will also give the customers all they need to know about how a gold IRA works and the setup process. In addition, they offer a smooth buyback process to their customers.

Noble Gold works with Delaware Depository and Brink’s Global Services to provide storage services for its customers. In addition to these storage companies, Noble Gold owns its depository in Texas. Hence, customers can choose to store their metals in any of these three depositories.


  • They have high ratings on more than one trusted customer rating site.
  • Their team of investment experts will give you detailed guidance to make the perfect choice for your gold investments.
  • They offer competitive prices.
  • They have a wide selection of gold and silver investments.
  • Their minimum initial investment is $2000.
  • They give their customers a free gold IRA guide.
  • They have their IRS-approved storage facility in Texas.


  • Their range of gold products comes with a high premium.

To start investing with Noble Gold Investment, please click this link to download its 2023 gold investment kit for free.


Bear Lake Gold cares about your 401k funds, and while we think you may not be able to stop inflation from hitting the United States economy, you can protect them from being hit badly by high inflation rates.

In this article, we have provided you with a detailed understanding of what inflation is, how it affects your portfolio as a 401k retirement investor, and what to do to shield your savings from inflation.

We believe that with continuous 401k contribution, checkmating your expense ratio, reducing cash at hand, and, most importantly, effective 401k portfolio diversification, you will mitigate largely the risk of losing your 401k investment portfolio to high inflation levels in the United States.

We highly recommend proper 401k portfolio diversification using gold and silver IRAs for your 401k funds protection. Hence, suppose you want to invest in gold IRAs for your 401k protection. In that case, click the relevant links in the previous section and download the U.S top five gold IRA companies' investment guides to get started.


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